Annual Report 2008 in PDF - GKN

10
Business Review continued
Earnings and dividends per share — pence
2004 2005 2006 2007 2008
■ Earnings per share on a management basis
■ Dividend per share
2. Growth in sales and trading margins
We aim to achieve growth in sales at both a Group
and divisional level in excess of that seen in our major
markets both in absolute terms and on a like-for-like
basis, i.e. excluding the effects of currency translation,
acquisitions or divestments.
In 2008 sales of subsidiaries rose by 13% to £4,376
million. Joint ventures, the sales of which are not
consolidated in the financial statements, declined by 5%
to £241 million. Our total Group sales on a management
basis increased by £495 million to £4,617 million (12%).
Overall underlying sales remained flat with growth
in both Aerospace and OffHighway, 10% and 17%
respectively, being offset by declines in Automotive and
Powder Metallurgy.
The Group’s medium term trading margin targets
are between 8% and 10% for Driveline and Powder
Metallurgy, between 6% and 10% for Other Automotive,
7% to 10% in OffHighway and 10% or higher for the
Aerospace division, giving an overall Group margin
target of between 8% and 10%.
The Group trading margin for 2008 of 4.8% (2007 –
7.5%) was adversely affected by the sharp deterioration
in automotive markets in the second half of the year.
OffHighway and Aerospace margins were within their
target ranges.
Sales* of continuing businesses and return on sales
£m
4,800
4,200
3,600
3,000
2,400
1,800
1,200
600
0
2004 2005 2006 2007 2008
Return on sales % * including subsidiaries and joint ventures
■ Sales
GKN plc Annual Report 2008
40
35
30
25
20
15
10
5
0
%
8
7
6
5
4
3
2
1
0
Return on average invested capital — %
Driveline Other Powder OffHighway Aerospace Group
Automotive Metallurgy
Target 12% ■ 2007 ■ 2008
3. Return on average invested capital
Return on average invested capital (ROIC) is defined
as the ratio of management trading profit to average
total net assets including the appropriate share of joint
ventures and excluding current and deferred tax, cash,
borrowings and post-employment obligations. We aim
to achieve ROIC, at both a Group and divisional level,
above the weighted average cost of capital of the Group.
To ensure our goals are clearly understood across the
Group, we use 12% as the pre-tax threshold for all our
internal ROIC measures and target all divisions to meet
or exceed that level. On a post-tax basis we estimate
this to be close to the Group’s long term weighted
average cost of capital of between 8% and 9%.
For the Group as a whole ROIC fell to 9.4% in 2008
(2007 – 15.1%), although OffHighway and Aerospace
achieved returns in excess of the threshold.
4. Group cash flow
The Group aims to generate sufficient cash flow each
year to cover dividend payments and fund above sector
organic growth. For these purposes cash flow is defined
as after capital expenditure but before shareholder
dividends, acquisitions, special contributions to the
UK pension scheme, currency movements in overseas
borrowings and the cash cost of strategic restructuring
programmes.
Cash fl ow* and dividend — £m
2004 2005 2006 2007 2008
■ Cash fl ow * before restructuring, UK pension defi cit funding, net gains and
■ Dividend
losses on intra-group funding and share buybacks
20
15
10
5
0
120
100
80
60
40
20
0